On Wednesday, BofA Securities adjusted its stance on HDFC Bank Ltd (NS:HDBK) (HDFCB:IN) (NYSE: HDB), upgrading the stock from Neutral to Buy and increasing the price target to INR1,960 from INR1,830. The revision reflects a shift in the market's focus towards asset quality risks and a broader slowdown in system credit growth, particularly in high-risk segments.
The analyst noted that while concerns about weaker growth and net interest margin (NIM) outlook led to a downgrade to Neutral in July, recent changes in the system outlook have altered the risk-reward balance for HDFC Bank. The analyst pointed out that the premium for growth is expected to be lower in the near term due to the slowdown in system credit growth and lower risk appetite.
Despite ongoing challenges such as deposit competition and slower loan growth, the analyst believes that these risks are now largely factored into consensus expectations. Furthermore, a change in management's strategy to expedite the transition period to meet loan-to-deposit ratio (LDR) targets is anticipated to bolster investor confidence.
The upgrade suggests that, compared to its peers, HDFC Bank's stock now presents a more favorable risk-reward profile. According to the analyst, the potential for re-rating among peers is limited in the current environment, making HDFC Bank a more attractive investment.
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